PRACTICE PROBLEM IN CASH RECEIVABLE, ESTIMATION OF DOUBTFUL ACCOUNTS

AND NOTES RECEIVABLE

The following information pertains to a company's cash balance and bank reconciliation as of August
31:

Company balance before reconciliation $ 5,000

Checks outstanding $ 2,500
Notes collected by the bank $ 2,200
Service fee $ 50
Deposits outstanding $ 2,000

What is the correct cash balance for the company?

A) $7,150.
B) $5,150.
C) $7,650.
D) $7,250.

Answer: A
Explanation: Cash = $5,000 + $2,200 − $50 = $7,150.

On May 31, Money Corporation's Cash account showed a balance of $10,000 before the bank
reconciliation was prepared. After examining the May bank statement and items included with it, the
company's accountant found the following items:

Checks outstanding $ 2,250

Deposits outstanding 1,900
NSF check 100
Service fees 40

Error: Money Corp. wrote a check for $30 but recorded it incorrectly for $300.

What is the amount of cash that should be reported in the company's balance sheet as of May 31?
A) $9,860.
B) $9,650.
C) $10,130.
D) $10,410.

Answer: C
Explanation: Cash balance = $10,000 − $100 − $40 + $270 = $10,130.

The balance in a company's Cash account on August 31 was $19,700, before the bank reconciliation
was prepared. After examining the August bank statement and items included with it, the company's
accountant found:

Checks outstanding $ 4,300

NSF check 140
Note collected by bank for the Colt Company 1,200
Deposits outstanding 1,800
Bank service fees 60

What is the amount of cash that should be reported in the balance sheet as of August 31?
A) $20,700.
B) $17,200.
C) $18,700.
D) $22,200.

Answer: A
Explanation: Book balance ($19,700) + note collected ($1,200) − NSF check ($140) −
bank service fees ($60) = $20,700.

A company's general ledger shows a cash balance of $4,570. Comparing the company's cash records
with the monthly bank statement reveals several additional cash transactions such as checks outstanding
of $2,840, bank service fees of $110, and interest earned of $15. Calculate the correct balance of cash.

Answer: $4,475
$4,570 − $110 + $15 = $4,475.

A company's bank statement shows a cash balance of $4,170. Comparing the company's cash records
with the monthly bank statement reveals several additional cash transactions such as checks outstanding
of $2,110, NSF check of $200, interest earned of $30, service fee of $40, and a check for $150 recorded
twice by the company. Calculate the correct balance of cash.

Answer: $2,060
$4,170 − $2,110 = $2,060.

A company's Cash account shows a balance of $3,450 at the end of the month. Comparing the
company's Cash account with the monthly bank statement reveals several additional cash transactions
such as bank service fees ($50), an NSF check from a customer ($300), a customer's note receivable
collected by the bank ($1,000), and interest earned ($100). How much is the total adjustment to cash?

Cash 1,100
Notes Receivable 1,000
Interest Revenue 100
(Record note collected and interest earned)
Service Fees Expense 50
Accounts Receivable 300
Cash 350
(Record bank service fees and NSF check)

A company's Cash account shows a balance of $5,680 at the end of the month. Comparing the
company's Cash account with the monthly bank statement reveals several additional cash transactions
such as deposits outstanding ($1,250), checks outstanding ($2,380), bank service fees ($40), an NSF
check from a customer ($150), a customer's note receivable collected by the bank ($500), and interest
earned ($60). How much is the total adjustment to cash?

Cash 560
Notes Receivable 500
Interest Revenue 60
(Record note collected and interest earned)
Service Fees Expense 40
Accounts Receivable 150
Cash 190
(Record bank service fees and NSF check)

Garber Plumbers offers a 20% trade discount when providing $2,000 or more of plumbing services to
its customers. In March 2021, Garber provided $4,000 of plumbing services to Red Oak Inc., and $1,500
of services to Cyril Inc. Each of these customers was granted credit terms of 2/10, net 30. If both
customers paid for the plumbing services within the discount period, what was the net revenues amount
for these two transactions?
A) $5,500.
B) $4,312.
C) $4,486.
D) $4,606.

Answer: D
Explanation: Trade discount = $4,000 × 20% = $800.
Sales revenue = ($4,000 − $800) + $1,500 = $4,700.
Sales discount = $4,700 × 2% = $94.
Net revenues = $4,700 − $94 = $4,606.

During its first year of operations, a company has credit sales of $250,000 and cash sales of $100,000.
By the end of the year, cash collections on credit sales total $180,000, and the company estimates
uncollectible accounts to be 6% of accounts receivable. The amount to record for the year-end adjusting
entry for uncollectible accounts would be:
A) $15,000.
B) $4,200.
C) $6,000.
D) $10,200.

Answer: B
Explanation: ($250,000 − $180,000) × 6% = $4,200.

The current year's beginning and ending balances for Allowance for Uncollectible Accounts is $23,000
and $27,000, respectively. If the amount of Bad Debt Expense for the year is $18,000, what is the
amount written off for the year?
A) $14,000.
B) $10,000.
C) $18,000.
D) $22,000.

Answer: A
Explanation: Beginning balance ($23,000) + Bad Debt Expense ($18,000) − Ending
balance ($27,000) = Actual write-offs ($14,000).

At December 31, Gill Co. reported accounts receivable of $238,000 and an allowance for uncollectible
accounts of $600 (debit) before any adjustments. An analysis of accounts receivable suggests that the
allowance for uncollectible accounts should be 3% of accounts receivable. The amount of the
adjustment for uncollectible accounts would be:
A) $6,540.
B) $7,800.
C) $7,140.
D) $7,740.

Answer: D
Explanation: ($238,000 × 3%) + $600 = $7,740.

Calculate the missing amount for each of the following notes receivable.

Annual Fraction of the

Face Value Interest rate Year Interest
$15,000 4% 8 months (a)
$25,000 8% (b) $500
$30,000 (c) 4 months $500
(d) 6% 6 months $600

Answer:
(a) $400; (b) 3 months; (c) 5%; (d) $20,000
$15,000 × 4% × 8/12 = (a) $400.
$25,000 × 8% × (b) 3/12 = $500.
$30,000 × (c) 5% × 4/12 = $500.
(d) $20,000 × 6% × 6/12 = $600.

On January 1, 2007, Mann Company borrows $2,000,000 from National Bank at 11% annual interest.
In addition, Mann is required to keep a compensatory balance of $200,000 on deposit at
National Bank which will earn interest at 5%. The effective interest that Mann pays on its
$2,000,000 loan is
a. 10.0%.
b. 11.0%.
c. 11.5%.
d. 11.6%.

d $2,000,000 × .11 = $220,000

$200,000 × (.11 – .05) = 12,000

Interest $232,000

$232,000 ÷ $2,000,000 = .116 = 11.6%.

On December 31, 2007, Eller Corporation sold for $75,000 an old machine having an original cost of
$135,000 and a book value of $60,000. The terms of the sale were as follows:
$15,000 down payment
$30,000 payable on December 31 each of the next two years
The agreement of sale made no mention of interest; however, 9% would be a fair rate for this
type of transaction. What should be the amount of the notes receivable net of the unamortized
 discount on December 31, 2007 rounded to the nearest dollar? (The present value of an
ordinary annuity of 1 at 9% for 2 years is 1.75911.)
a. $52,773.
b. $67,773.
c. $60,000.
d. $105,546.

A $30,000 × 1.75911 = $52,773.

On the December 31, 2007 balance sheet of Yount Co., the current receivables consisted of the
following:
Trade accounts receivable $ 75,000
Allowance for uncollectible accounts (2,000)
Claim against shipper for goods lost in transit (November 2007) 3,000
Selling price of unsold goods sent by Yount on consignment
at 130% of cost (not included in Yount 's ending inventory) 26,000
Security deposit on lease of warehouse used for storing
some inventories 30,000
Total $132,000
At December 31, 2007, the correct total of Yount 's current net receivables was
a. $76,000.
b. $102,000.
c. $106,000.
d. $132,000.

a $75,000 – $2,000 + $3,000 = $76,000.

Assuming the market interest rate is 10% per annum, how much would Green Co. record as a note
payable if the terms of the loan with a bank are that it would have to make one $80,000 payment
in two years?
a.$80,000.
b.$72,563.
c.$72,727.
d.$66,116.

d $80,000 × .82645 = $66,116.